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Measuring Financial and Clinical Impacts of M&A Activity

By Jonathan Bees  
   May 03, 2018

What do operating margins and net patient revenue look like and has the cost of providing care come down due to greater scale after M&A activity?

One aspect of healthcare industry merger, acquisition, and partnership activity that has mostly gone under the radar is determining the kind of financial and clinical impacts providers are experiencing post M&A.

What do operating margins and net patient revenue look like, and has the cost of providing care come down due to greater scale? Has M&A activity had a beneficial effect on patient readmissions, HCAHPS scores, and most importantly, quality outcomes?

According to the 2018 HealthLeaders Media Mergers, Acquisitions, and Partnerships Survey, the majority of respondents report positive views on the financial impact M&A activity has had on their organization, with 74% saying that net patient revenue either increased (46%) or remained the same (28%), and only 6% indicating that it decreased. Further, 72% say that operating margin either increased (39%) or remained the same (33%), and only 11% report that it decreased.

However, the response for cost of providing care is somewhat less positive with 35% saying that costs remained the same. Yet the overall outlook is still positive given that more respondents say costs decreased (26%) than increased (18%).

Clinical impacts

The picture for clinical impacts is also encouraging, with respondents generally indicating positive views on the impacts their organization experienced after its most recent M&A activity.

For example, a greater share of respondents say that patient readmissions decreased (18%) than increased (11%), although 40% say this remained the same. Further, a greater share say HCAHPS (or other CAHPS) scores increased (17%) than decreased (4%), although 46% indicate that this remained the same. Perhaps best of all, a greater percentage say that quality outcomes increased (35%) than decreased (4%). Forty percent say this remained the same.

Pamela Stoyanoff, MBA, CPA, FACHE, executive vice president, chief operating officer at Methodist Health System, a Dallas-based nonprofit integrated healthcare network with 10 hospitals and 28 family health centers, notes that financial considerations generally drive most M&A activity, and that quality improvements, while greatly appreciated, aren’t the core objective.

"I don't think that the primary purpose behind most mergers and acquisitions is quality-related. If respondents achieved improved quality outcomes, this is probably an added benefit of the merger versus one that was sought out necessarily from the beginning."

While overall these impacts represent fairly modest improvements to respondent organizations, the most telling data on their views about M&A activity is the following: Nearly three-quarters (73%) of respondents say that their organization would choose to participate again in its most recent M&A activity, a very positive finding given the costs and complexity of such undertakings and the many ways a M&A deal can get sidetracked. Note that only 8% of respondents say that they would not choose to participate again.

Jonathan Bees is the senior research analyst at HealthLeaders Media.

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